The government is going ahead full-throttle on infrastructure. It has set up the National Bank for Financing Infrastructure and Development or NaBFID and has appointed veteran banker KV Kamath as its chairman.
The budgeted capex this year is 26 percent over last year and 65 percent over 2019-20. In the first six months, the government has spent only 40 percent of the full year. Therefore, there is a good distance to cover in the second half of the year. However, the government is also monetising Rs 111 trillion of assets over the next four years.
The NaBFID has been given Rs 5,000 crore capital and this will be hiked to Rs 20,000 crore. This is a huge space to watch out for in terms of monetization and fresh capex and could be an important space to watch for the whole economy in the next six months.
Sharing more insights on the developments, Kamath said it is has been only 14 days since he took charge but good progress has been made in those days. “We have had support from some of the leading banks, we have a team of around 15 people who have been seconded to us covering all the functional areas of development, institution and infrastructure financing company with relevant skill sets.
He said the team is evaluating the appropriate technology platform and all the learnings that have been rolled out NDB are coming in handy. “Like what is the sequencing? How do you go about it? What is the critical path? And how do you do best within the critical path? That is all that is going on? It is the team of people who have been seconded that are working full-time you,” he said.
On the appointment of CEO, he said it is the process that has to now commence and will go through the Banking Bureau, and Executive Board members will go through that route and it is expected shortly.
Kamath further said he hopes to have a slate of projects identified and appraised possibly by March 31.
“We need to be regulatory compliant, we need to make sure that our technology platforms and other things are in place. To me, it appears that is the critical path. The human capital is not the critical path, the financial capital is not the critical path but the technology platforms, which you need to have in place to be to make sure that you are regulatory compliant,” said Kamath.
Kamath was asked who would be coming to the table asking for money - would it be any of the NHAI projects and would it be for roads or renewables.
He said, at this juncture, where he and his team are just a few days into it, there is a natural infrastructure pipeline (NIP) with the ambition of $1.5 trillion and within that, if the team did a very quick deep dive as it were, there are 193 projects about Rs 1000 crore each, which are ready to go and so would start by looking at these 192-200 projects.
Kamath added that they will also see if there is a role they could play in other efforts the government is trying to bring to bear in terms of the path forward, like the monetisation pipeline.
“So, given that we have capital, we can leverage that capital very quickly and we can probably provide a bridge. These are early thoughts, we need to discuss it internally and see what all are the opportunities that we see in the marketplace but I don't want to jump the gun,” said Kamath.
He further said the 193 projects cover all the key four or five sectors -roads, railways, energy, metro systems and the like, and so on. There are also social projects, including irrigation projects. So, they will look at things with a very open mind and then see what is the need of the hour and where funding will be most meaningful. “All this will drive economic agenda forward. That is for sure,” he assured.
When asked why he thought NBAFID would be successful when previous DFIs have failed, Kamath said, “It is a simple answer - those DFIs including ICICI served a purpose for the first 50 years up to 1995-96 – how were they getting their funding, there is the key - it is not lack of demand, it was not reappraising skills, human capital or financial capital, it was basically funding other than equity capital, which is the problem. The funding was coming from government guarantees, which enabled these DFIs to raise money in the market and these securities were treated as SLR securities for the purpose of computation. The moment that window was withdrawn in the early or mid-90s, the story was very clear. So you had to either change course, correct course or probably hit a wall and ICICI Bank corrected course and we are aware where the bank is today.”
However, today the situation is completely different. At that point in time, if one looked at where the funding came from, it basically came from the banks themselves or from some savings that were generated by the insurance company, he explained. Today that entire funding side business has changed, there are pension funds, and a flourishing insurance industry, which has a lot of runway to growth and they on the other side will look at long-term assets and basically we provide them the assets, Kamath added.
For the full conversation, watch the video